Failure by a party to a dispute to reasonably consider
alternative dispute resolution procedures (ADR), including
mediation, can result in severe costs sanctions being imposed by
the court. It is not difficult to see why the court encourages
mediation:
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• It can save costs and management time if settlement is
achieved at an early stage
• It is a confidential process. Nothing said at the mediation
can be used in any subsequent litigation proceedings
• The terms of a mediated settlement can go well beyond the
terms capable of being imposed by a court following trial
• A successful mediation can take away the substantial costs
risk of defeat at trial
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By GlobalDataThe costs of preparing for mediation can however be substantial.
That such costs may be irrecoverable in the litigation if the
mediation fails is often put forward as a reason not to mediate.
The party so protesting then runs the risk of being penalised in
costs for unreasonably refusing to mediate.
However, clarity has recently been provided by the court confirming
that the costs arising from a failed mediation do fall within the
definition of recoverable costs of litigation and so can be
recovered by the ‘winner’ from the ‘loser’ after trial. The parties
can still, however, specifically provide that the costs incurred
are to remain separate and outside the scope of recoverable
costs.
The facts of National Westminster Bank v Feeney
The parties’ mediation agreement contained the
standard provision that each party would pay its own legal costs of
the mediation and would bear the mediation costs, such as the costs
of the mediator and venue, jointly. The mediation was unsuccessful
although the parties did later reach a settlement which included a
provision that the claimant pay the costs of the defendants’
counterclaim.
The defendants included in their costs of the counterclaim their
half share of the mediation costs and the legal costs of preparing
for and attending at the mediation.
The decision
On appeal the court held that
in principle such costs are prima facie recoverable costs of the
litigation unless the terms of the mediation agreement specifically
provides otherwise. Any terms as to payment of costs in the
mediation agreement bind the parties unless altered by specific
wording in any subsequent settlement. The court will not, at trial,
interfere with what the parties have previously agreed. If the
agreement is silent as to costs, they will form part of the
recoverable costs of the litigation when generally the ‘loser’ will
pay them.
However, on the facts of this case, neither the mediation costs nor
the legal costs were recoverable by the defendants. This was due to
the specific wording of the mediation agreement and the very
general form of wording used in the subsequent settlement
agreement, which did not seek to change what had previously been
agreed.
Conclusion
The issue of mediation costs – whether the parties are to bear the
costs themselves, or they are to become part of the litigation
costs – should be specifically addressed and agreed before the
mediation takes place and recorded in the mediation agreement. The
parties then know exactly where they stand. The fact that parties
can agree that the costs can be recovered, if settlement is not
achieved, from the ultimately losing party may also help focus the
minds of those involved in achieving a resolution at the mediation
stage.
The author is director in Wragge & Co LLP’s Recoveries
and Finance team
